Revived action in passives brightens hopes for 1997

Electronic News, Feb 3, 1997 by Fred Guinther

New York--Revived activity in passive components is brightening the new year for manufacturers and distributors alike. Across the board increases in bookings of capacitors, resistors, connectors and other passive lines are being reported as February begins, with many noting business has been on the upswing since late '96. Furthermore, hopes of a strengthening semiconductor market were fueled last week by Intel's smaller than expected price cut on some microprocessors, which some analysts took as an indication of improving IC business, as well as a demonstration of Intel's clout in MPUs.

In passives, the "excess inventory accumulation" of earlier last year "is behind us," claimed David Maguire, chairman/CEO of capacitor maker Kemet last week. "We are in the early stages of an industry-wide rebound."

Current passive components business packs a punch, according to Craig Conrad, VP sales for Fort Worth-based passives distributor TTI, Inc. "I would say that, discounting the holiday season weeks which are traditionally slow, the final quarter of 1996 and the beginning of 1997 have shown real strength. November was a four-week record period for TTI. December opened strong until the holiday lull, which carried over to the beginning of January, but January was much improved in the last weeks. February, which has already begun for us in our four-week cycles, is opening really well."

Also impressed with current business levels is Wes Sagawa, president of Arrow's passive specialist unit Capstone Electronics in Aurora, Colo. He said the current trend is "particularly pleasing because the seasonal surge at the end of the year fueled by holiday sales of PCs and the like sometimes leads to a slacking off at the beginning of the new year. This year, January has continued strong, and we think that's good news." Capstone operates on quarters based on 5, 4 and 4-week months, Mr. Sagawa explained, pointing out that the latest 5-week month--January--is well ahead of the previous comparative period--October 1996. He said that increases are being seen in all types of components.

Kemet's Mr. Maguire reported enlivened business for his company during the last three months of CY1996, which showed gains from the immediately previous quarter, although coming in behind year-earlier results (see separate story on page 56). Mr. Maguire said, "We experienced a significant increase in orders during the third quarter (Oct. 1-Dec. 31) compared with the prior two quarters of this year. We believe the sequential growth in sales and earnings is evidence that last year's excess inventory accumulation is behind us and that we are in the early stages of an industry-wide rebound.

"We believe Kemet is well positioned to take advantage of the rebounding market," Mr. Maguire continued. "We carried out an aggressive capital expenditure program during the industry-wide correction period, including investments in technology, infrastructure and world-class manufacturing facilities. We believe our extended capacity and focus on the two fastest growing segments of the capacitor industry, tantalum and ceramic surface mount capacitors, will allow us to capture additional market share as the market strengthens."

Patricia H. Moorman, VP distributor sales at Bourns Inc., says that although her company's sales of passives through distribution were essentially flat for the year 1996, bookings picked up encouragingly in the fourth quarter. "We're now seeing across the board increases in our core business and new product lines," she told EN last week.

And a research report on AMP by Salomon Brothers' analyst Thomas Hopkins comments: "There are several indications that the electronic component inventory correction (brought on by customer double-ordering in 1995) that affected the connector group in 1996 is just about over--if not completely over. First, we believe that days sales outstanding of electronic components distributors, which account for 35 percent of connector industry sales, peaked in August at 51, up from 48 in March. In October, the measure was back down to 48.4 days, and down again in November to 47.8. During the same March-August period, the distribution annualized inventory turnover rate appears to have bottomed, sliding from five to 4.6. Again, as with days sales outstanding, In October the rate had jumped back to 4.95 and moved up again in November to 4.99. Second, Molex, the industry's second-largest company and a connector "pure play," continues to see a rise in monthly orders for immediate delivery. Third, the semiconductor book-to-bill ratio has turned positive again in recent months."

Semiconductor distributor Nu Horizons recently reported in these columns a pickup in business. According to the Amityville, N.Y. firm's marketing VP Ben Schwartz: "There has been a nice pickup in the activity level and bookings are up. I hope we continue the momentum." (Off the Shelf, Jan. 27).

Meanwhile, a spokesperson for passives maker Vishay Intertechnology declined comment on activity in the company's Dale, Sprague, Vitramon and Roederstein lines, saying that Vishay is in a "quiet" disclosure period pending the release of its quarterly results.